Energy sector being pushed to modernize

Russia's power plants are worn out, and both owners and officials agree something must be done. There is strong reluctance in the industry to commit any more money with market conditions still so uncertain.

Last month, Prime Minister Putin had sharp words for the energy companies, which he accused of not meeting their investment obligations.

The power companies blame the crisis and slumping demand for energy, plus investors want to see higher tariffs and greater transparency in the energy market so they can be sure they'll get a return on their money.

Italy’s Enel, which runs one of Russia's biggest generators, continued its investment program throughout the downturn. Dominique Fache, Chief Operating Officer of Enel Russia, says the operating environment in Russia is too complicated and wants to see clearer rules and further consolidation in the sector.

“We need this second wave coming which is going not to change the direction but make things happen. Second wave should bring us consolidation. It’s a capital intensive business and it’s a long term business so it needs solid robust strong players.”

The Sayana Shushenskaya hydro plant accident in august last year is just one sign of the poor state of repair of generating facilities.

The government is trying to identify the most inefficient and worn out plants. These will need to be replaced with new facilities, before being disconnected from the electricity grid according to Fyodor Opadchy, Energy Market Division Director, Energy System Operator

“We are calculating how much capacity we can suspend. The current answer is from zero to tens of gigawatts- it will depend on how long it is for. We have to replace the aging generators with new ones, but we need to know how much new capacity we are able to build because it costs money.”

The government hopes the energy companies will fulfill their investment obligations, but hoping seems to be the only thing it can do – since at the moment officials lack any real instruments to force the companies to spend money if the returns look unfavorable.